Nov 15- The Insurance Board (IB) has requested Nepal Rastra Bank to freeze all bank accounts of NB Insurance after the non-life insurer failed to get its act together despite repeated calls made by insurance sector regulator.
The regulator today sent a request in this regard to central bank‚ a high-ranking IB official told The Himalayan Times. "We hope all bank accounts owned by the insurance company would be temporarily sealed by tomorrow‚" the official said.
Once accounts are sealed‚ the insurance firm will not be able to conduct any financial transaction on its own. "It will have to take our permission to settle claims of its clients but can deposit earnings in its accounts without taking our consent‚" the official said.
The regulator took this action after the insurance company failed to implement reforms in various sectors despite repeated calls in the last one and a half years.
NB Insurance landed in trouble in February 2012 after the regulator found that it had made a controversial payment of Rs 59 million in the pretext of clearing house rent without taking the consent of the regulator. Since insurance companies are not allowed to make expenses in excess of Rs two million without taking IB's permission‚ NB was found at fault.
It was later known that NB had extracted the amount from the 'earmarked fund'. This was again illegal as insurers are not allowed to use cash parked in the fund. But investigations showed the company had managed to siphon off over Rs 70 million from the reserve.
Of this amount‚ Rs 21.5 million‚ which was deposited at Nepal Housing and Merchant Finance‚ was later transferred to various commercial banks‚ and Rs 15.3 million was parked at call and current accounts of different finance companies. But a huge chunk of money — Rs 35.3 million — still lies in World Merchant Banking and Finance Company‚ which has been declared 'troubled' by the banking sector regulator.
Following the revelations‚ IB even suspended the operating licence of NB Insurance for two months in July 2012. Since then the IB has provided the board and management of NB Insurance enough time to recover the embezzled funds but they have not been able to do so.
Just a few weeks ago‚ the regulator had also asked the company to carry out a due diligence audit to ascertain the financial position of the insurer. "But it has failed to do that either‚" the IB official said.
NB Insurance‚ with a paid up capital of Rs 141 million‚ needs to increase its capital base to Rs 250 million as per IB's regulation. It incurred a loss of Rs 44 million last fiscal year.